Correlation Between Watsco and Orient Overseas

Can any of the company-specific risk be diversified away by investing in both Watsco and Orient Overseas at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Watsco and Orient Overseas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Watsco Inc and Orient Overseas Limited, you can compare the effects of market volatilities on Watsco and Orient Overseas and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Watsco with a short position of Orient Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Orient Overseas.

Diversification Opportunities for Watsco and Orient Overseas

-0.07

Correlation Coefficient

Watsco  Orient Overseas

Good diversification

The 3 months correlation between Watsco and Orient is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas and Watsco is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Watsco Inc are associated (or correlated) with Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Watsco i.e., Watsco and Orient Overseas go up and down completely randomly.

Pair Corralation between Watsco and Orient Overseas

Considering the 90-day investment horizon Watsco Inc is expected to generate 1.05 times more return on investment than Orient Overseas. However, Watsco is 1.05 times more volatile than Orient Overseas Limited. It trades about 0.06 of its potential returns per unit of risk. Orient Overseas Limited is currently generating about 0.02 per unit of risk. If you would invest  48,490  in Watsco Inc on December 25, 2024 and sell it today you would earn a total of  2,818  from holding Watsco Inc or generate 5.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Watsco Inc  vs.  Orient Overseas Limited

Watsco Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Orient Overseas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Overseas Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Orient Overseas is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Watsco and Orient Overseas

The main advantage of trading using opposite Watsco and Orient Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, Orient Overseas can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Orient Overseas will offset losses from the drop in Orient Overseas' long position.

The idea behind Watsco Inc and Orient Overseas Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.